ENVIRONMENTAL SELF-REGULATION AND SUSTAINABLE ECONOMIC GROWTH: THE SEAMLESS WEB FRAMEWORK

Eco-Management and Auditing
Eco-Mgmt. Aud. 6, 61–75 (1999)
ENVIRONMENTAL
SELF-REGULATION AND
SUSTAINABLE ECONOMIC
GROWTH: THE SEAMLESS WEB
FRAMEWORK
William J. Altham1
and Turlough F. Guerin2
*
1
Murdoch University, Australia
2
Environmental Adviser, USA
A ‘seamless web’ framework of
environmental regulation is emerging.
The seamless web provides a
comprehensive and holistic framework for
facilitating the transition to ecologically
sustainable development (ESD). This
seamless web comprises numerous
threads, that is regulators and regulatory
mechanisms, which provide the
framework in which society may attain
effective protection from environmental
degradation. Regulatory bodies include
government and state regulators, NGOs,
industry peers, investors and consumers.
Regulatory mechanisms and incentives
range through lower costs, increased
market share and long term resource
access and sanctions ranging through
incarceration of directors, license
withdrawal, fines, falling profits, loss of
market share and falling investor
confidence. We conclude that
self-regulation is a useful mechanism to
promote environmental protection, and
that industry will increasingly face
pressure to improve its environmental
performance from many stakeholders.
The seamless web framework recognizes
the pivotal role of industry in
environmental regulation, catering for a
range of corporate cultures, and thereby
stimulating innovation of appropriate
technology. Copyright 1999 John
Wiley Sons, Ltd and ERP Environment.
Accepted 3 February 1999
INTRODUCTION
T
he environment, according to many
opinion polls, is the issue of the ‘future’
(Gunningham, 1994a). Concern for the
environment has led to many innovations, fora
and institutions that study, discuss or attempt to
provide solutions for our environmentally unsus-
tainable social and economic system. The World
Business Council for Sustainable Development,
Brundtland Report, Agenda 21 and the Earth
Summit, Climate Change Convention and Ozone
Conventions are just some examples of institu-
tional responses to environmental problems.
Many of these responses see industry involve-
ment, through self-regulation in a broad sense, as
a critical component of a successful resolution of
these issues (Anonymous, 1996; Deavenport,
*Correspondence to: Dr. Turlough F. Guerin, 1691 E Green Briars
Drive, Suite 3821, Schaumburg, IL 60173, USA.
CCC 0968-9427/99/020061–15 $17.50
Copyright 1999 John Wiley Sons, Ltd and ERP Environment.

1996; Hemphill, 1996; Nash and Ehrenfeld, 1997;
Jackson, 1998; Mullin, 1998a b; Noor-Drugan,
1998; Scott, 1998).
There is ongoing debate regarding the most
effective forms of environmental regulation
(Mullin and Sissell, 1996). Environmental regula-
tions are required to correct market failures, while
offering protection to the environment and future
generations. Full costs should be considered by
the market to ensure the correct allocation of
resources. However, environmental regulations
are open to political interference in a climate
where there are high levels of uncertainty as to
future technology, resource availability, industry
growth, innovation and employment.
Self-regulation is increasingly being promoted
as an efficient form of regulation and is being
incorporated into corporate environmental policy
making and implementation (Seif, 1995; Sheldon,
1997). However, this has created heated debate
within society. Industry fears that self-regulation
may become part of standard regulatory practice
(Colby, 1997) under political pressure from envi-
ronmentalists. Industry also fears that a voluntary
industry framework, to allow companies to go
beyond environmental compliance within their
own time-frame, could become another regulatory
weapon by which they will be controlled, that it
would hit small business particularly hard and that
it could become a barrier to trade and increase
commodity prices (Blau, 1995; Samdani, 1995;
Bridgen, 1996; Dwyer, 1996). Certain industries
also see the introduction of further environmen-
tal standards as additional, non-business work
(Webb, 1995). On the other hand, environmental-
ists maintain that self-regulation is a move to ‘pull
the wool’ over the public’s eyes, with the environ-
mental movement having a distrust of initiatives
from industry (Mullin, 1998a b). Others argue
that the command-and-control framework, which
is the basis for most environmental regulations,
is economically inefficient and have proposed a
variety of market-based alternatives. The most
prominent alternative is industry self-regulation,
which affords industry the opportunity to gain
exemptions from specific command-and-control
requirements by proposing different methods
for achieving underlying environmental goals
(Steinzor, 1998).
Industry needs to take an active role in the
development of all forms of environmental
regulation if it wishes to ensure a balanced debate
with workable solutions. To encourage proactive
industry involvement in setting and implementing
corporate environmental policy will require the
development of institutions and government
and state policies that manage risk and uncer-
tainty for industry (Lepkowski, 1994; Jaffe and
Stavins, 1995). The development of feedback
loops, or improvement cycles, within company
management systems, which leads to continuous
improvement, is important if industry is going
to demonstrate environmental leadership. The
commercial benefits of such a proactive approach
to environmental management are becoming
clear in numerous industries (Greis, 1995; Ferrone,
1998; Jancsurak, 1998). Traditionally, environ-
mental issues and concerns have been viewed as a
constraint to businesses and have resulted in
environmental managers relying heavily on a
reactive, compliance-based approach to justify
change. Businesses are now recognizing that
efficient management in the environmental
arena can benefit the entire company and
open new opportunities for increased profits.
Managers have acknowledged that environmental
issues can be integrated into daily business
trends and activities (Metcalf et al., 1996). Not
only does sound environmental management
decrease liability, but also, in current markets,
a ‘green’ image can attract investors and
customers.
It is argued in the current paper that a seamless
web of environmental regulation has an ability to
provide the greatest protection to the environ-
ment while stimulating the innovation and diffu-
sion of environmental technology, catering for
different corporate cultures and providing a holis-
tic approach to environmental regulation. This
paper describes the development of a seamless
web framework of environmental regulation. The
paper divides the evolution of environmental
regulation into three stages in order of develop-
ment (Figure 1(A) – (C)). These represent the
major groups of stakeholders in the setting of
environmental regulation for each of the stages
(Table 1). The ISO 14000 environmental manage-
ment system (EMS) standards (Begley, 1996) have
been used as an example of self-regulation in this
paper and the specific definitions used are given in
Table 2.
W. J. ALTHAM AND T. F. GUERIN
Copyright 1999 John Wiley Sons, Ltd and ERP Environment. Eco-Mgmt. Aud. 6, 61–75 (1999)
62

Figure 1. (A) Stage one – traditional environmental regulation. (B) Stage two – traditional environmental regulation inﬂuenced
by market mechanisms. (C) Stage three – seamless web model of environmental self-regulation.
(A)
(B)
(C)
SEAMLESS WEB FRAMEWORK
63

MARKET FAILURE AND THE
DEVELOPMENT OF ENVIRONMENTAL
REGULATIONS
A market failure occurs when the market does not
produce the allocation of resources that maxi-
mizes the total level of social welfare. In other
words, such failures occur when an important
economic factor is overlooked and therefore left
unpriced. Underpricing can lead to the rapid
overexploitation of a given resource and regulat-
ory institutions should operate on the assumption
that higher prices must be assigned to limited
resources (Brown, 1996).
Hawken (1993) comments that ‘markets are
superb at setting prices, but incapable of recog-
nizing costs’. The costs referred to here are
externalities, and these create a market failure. An
externality occurs when a third party has to bear
the cost of the action of others, and is not fully
compensated (Philpot, 1992). Pollution is the
classic example of an externality. This cost of
pollution is largely borne by the community as a
social cost. Because the community and not the
consumer of the product carries some of these
costs, the price of the product is reduced and
demand is increased.
A range of environmental regulatory mechan-
isms are available to correct such market failures
(Harris, 1996; Hyde, 1997). These vary in the
degree of their government and state authority.
Such mechanisms include traditional (command-
and-control) regulation, market mechanisms and
self-regulation measures. The effectiveness of
these mechanisms varies depending on many
factors. These include the culture of the organiz-
ation under these regulatory mechanisms, the
nature of the market failure, the opportunities for
the industry to alter their production methods and
substitute materials, the resources allocated to the
regulator, the visibility of the industry sector in
the market place and the expectations of the
community and other stakeholders.
THE ROLE OF TRADITIONAL
REGULATION
Traditional environmental regulation involves
what is commonly called ‘command-and-control’.
This includes flat taxes and charges, and direct
environmental regulations. They involve a gov-
ernment or state institution legislating industry
behaviour (Gunningham, 1994b), in effect telling
industry what it can and cannot do, and how
much it will cost them (Figure 1(A)). Industry
responds to the regulations by addressing the
specific concerns with limited view to any
greater environmental impact reduction (Wilson,
1997).
Table 1. Stakeholders in environmental regulation.
Stakeholder Influence
Government Set industry standards under political pressure
State Set industry environmental performance standards under direction of government
Industry organization Influence industry standard settings
Industry Influence industry standard settings
Peers Influence industry standard settings
Participate in trading under market regulation
Environmental regulators Set and enforce industry standards
Market Place where market regulation are traded
Community Influence environmental performance and standards through political pressure
Consumers Influence sales, therefore profit of company
Environmental NGOs Influence industry standard settings through political pressure
Financial institutions Influence industry behaviour through reduced cost if environmental risk is managed
Insurance sector Influence industry behaviour through reduced cost if environmental risk is managed
Investors Influence industry behaviour through supply of capital if environmental risk is managed
Work force Affect worker productivity and staff turn-over
64

Many problems with traditional environmental
regulation have been identified (Bovy, 1989;
Susani, 1996). These including their inflexiblility
(Wolf, 1988) and tendency to be directed by
political consideration (Brozen et al., 1990). In
addition, limited power and resources available
to the regulator often leads to inadequate
enforcement of regulations.
As far back as the late 1960s economists and
industrialists were questioning the economic ef-
ficiency of traditional environmental regulations
(BIE, 1992; Tyler Miller, 1994). The BIE (1992)
provides a summary of concerns with traditional
regulations, while highlighting the benefits of the
market mechanism:
Many economists argue that direct regu-
lations are static, inflexible and sub-optimal
in terms of environmental and economic ef-
ficiency. Direct regulation, despite its accept-
ability by government, is cost-ineffective in
reducing emissions when compared to both
pollution taxes and permits.
These statements were supported by studies of
the costs of the two types of policy (traditional
versus market) on industry in the US’s Clean Air
Act policy changes, with the shift to market
requirements producing an estimated saving of
$US900 million up to 1985 (BIE, 1992). Tyler-
Miller (1994) claims that the current US bill for
environmental protection of over $US120 billion
per year could be cut by 33–50% if more effective
market-based policies were used.
However, possibly the greatest drawback with
traditional regulation is that, in general, it has
resulted in ‘end-of-pipe’ solutions to environ-
mental problems (Nash and Ehrenfeld, 1997).
End-of-pipe solutions are short-term, regulatory-
driven solutions, which do not generally address
the cause of the problem (Klassen and Angell,
1998). Examples include where equipment is
added to the end of a process, such as filters and
scrubbers to pollution discharge points.
Although sound and well enforced environ-
mental regulations are an essential foundation for
improving environmental quality, command-and-
control systems alone are not achieving the lower
levels of pollution that will be necessary to
achieve ecologically sustainable development
(Rondinelli and Berry, 1997).
THE ROLE OF MARKET MECHANISMS
Market mechanisms require the establishment of
property rights for pollution emission and natural
resources, and a market in which to trade these
rights, with the price determined by market
forces. In theory, market mechanisms allow natu-
ral resources to be used for their highest market
value end use, by the most economically efficient
operators. Pollution is generated by sectors of
industry with the greatest potential to pay, or
the highest control costs (though not strictly
always the case). This leads to the ‘polluter pays
principle’, in which
Trade occurs because low-cost polluters will
find it financially advantageous to cut pol-
lution levels and sell permits, whereas high
cost polluters find it financially advantageous
to purchase permits rather than decrease
pollution (Owen, 1991).
This trading mechanism allows the maximum
production for any loading of total emissions. In
addition, market mechanisms and tradeable permit
systems, in theory, are dynamic, allow for tech-
nological innovation, allow new entrants into the
industry, expand markets and are self-adjusting
for inflation. All of these factors reduce the
involvement of the state in environmental regu-
lation (Figure 1(B)). An example of market mech-
anisms is that of air emissions trading. Under the
US Acid Rain Program, and California’s Regional
Reclaim Program, the US has demonstrated the
economic and environmental feasibility of these
so-called ‘cap-and-trade’ programs. Now, emis-
sions trading is being considered in other areas
e.g. northeastern US, where trading schemes are
under development to curb ozone precursors. A
variety of states have implemented trading
programs to reduce NOx and volatile organic
compounds. Emissions trading is becoming inter-
national as governments attempt to curb
greenhouse-gas emissions (Hairston et al., 1998).
Such initiatives represent a fundamental change in
environmental management. A key element of
emissions trading is the degree of compliance
flexibility it affords individual operators (Hairston
et al., 1998).
The type of environmental regulation also
affects the organizations’ incentive to adopt new
technology for pollution control (Jaffe and
65

Stavins, 1995). In work by Milliman and Prince
(1989) they concluded that
Direct controls, which are common regulatory
tools, usually provide the lowest relative firm
incentives to promote technology. On a rela-
tive basis, emission taxes and auctioned per-
mits provide the highest firm incentive for the
adoption of new technology.
The major limitation of market mechanisms is
that they cannot set the physical limits to the
level of harvesting of natural resources or the
assimilative capacity of the environment. This is a
role for science, but clearly our scientific knowl-
edge is incomplete (BIE, 1992). For example, if
timber allocations or fishing quotas are set too
high, the level of harvesting will be unsustainable.
Alternatively, if the level of emission quotas
allocated within a region is higher than the area
can assimilate there will be social costs associated
with the activity.
The potential role market mechanisms may
play in effective management of environmental
issues have recently been discussed (Gustafsson,
1998). Although some assert that environmental
problems could be solved by appropriate pricing
of the environment and liberal application of
market mechanisms for environmental manage-
ment, these types of simplification may overlook
the many complicating factors inherent in
environmental degradation and the limitations
of market mechanisms as a means of coping
with environmental problems. These limitations
include problems in defining and enforcing prop-
erty rights concerning functions and services
provided by nature (Gustafsson, 1998).
THE ROLE OF SELF-REGULATION
AND CODES OF PRACTICES
Self-regulation, including codes of practice and
standards, are developed by industry for many
diverse reasons, including as a means of showing
social responsibility and a desire by industry to
reclaim the agenda-setting of their industry from
other stakeholders. The development of EMS
standards (ISO 14001, BS7750 and EMAS) can be
seen as the latest stage in the development of
modern environmental regulation (Nash and
Ehrenfeld, 1997). Self-regulation can include either
performance, content or process standards. It is
the process standard of ISO 14001 which
is now contemporary and is being adopted
internationally (Hemenway, 1995; Snyder, 1995;
Hemenway, 1996; Label and Tandy, 1998).
Simply defined, a standard is anything, a rule or
principle, that is used as a basis for judgment, an
average or normal requirement, quality, quantity,
level, grade, established by authority, custom or
an individual as acceptable. Standardization, and
its application to business systems, is one of the
most important aspects of effective environmental
management, a prerequisite for management, and
empowering employees to understand where the
company is vis-a-vis work and performance
(Johannson, 1994). The improvement process can-
not be undertaken successfully until standards are
established and understood.
Self-regulatory mechanisms, including the ISO
14000 series, accept the legislative regulations as
a minimum standard that industry must achieve.
The standards then encourage industry to be
proactive, encouraging continuous improvement
through the management process. ISO 14000 is
a series of voluntary EMS standards, developed
by the International Standards Organization
(Struebing, 1996; Burns and Fredericks, 1997;
Iwanski et al., 1997; Hersey, 1998). These stan-
dards provide a framework by which an organ-
ization can focus attention on its internal
management activities. This allows the organiz-
ation to integrate environmental management
with other existing management considerations
(such as production, sales, finance, safety and
quality), with the aim of achieving continuous
improvements in the organization’s environ-
mental performance. The overall aim of ISO 14000
is to support environmental protection and
prevention of pollution in balance with socio-
economic needs. This series of standards cover
the following major areas:
(i) environmental management systems,
(ii) environmental auditing,
(iii) environmental performance evaluation,
(iv) eco-labeling and
(v) life-cycle analysis.
Self-regulation implies (to a large extent) no
legal requirement to comply. Therefore some
other type of incentive for organizations to adopt
66

such mechanisms is required. The major initial
incentive for organizations to adopt self-
regulation, including ISO 14001, is provided by
the market. That is, organizations adopting them
will, it is commonly claimed by advocates, be more
efficient and competitive, gaining a marketing
advantage in the longer term (Johannson, 1995).
Codes of practices can act as a trail to see
how industry is affected by changes in regulation.
On occasions, sections of these codes have
even become incorporated into law, such as the
dangerous goods code in Australia, which has
become Federal law. There is the problem of
verifying that individual industry organizations,
claiming compliance to a particular code, are in
fact complying with that code. To minimize this
problem and increase the public’s confidence in
the minerals industry, the Minerals Council of
Australia (MCA), for example, requires member
organizations to be externally audited at least
every three years against the MCA Code for
Environmental Management.
INTEGRATING THE COMPONENTS
OF ENVIRONMENTAL REGULATION
INTO A SEAMLESS WEB
With continuous additions to the regulatory
mechanisms, it is often difficult to determine
where any particular regulator or regulation fits.
One way of understanding the situation is
through the concept of a seamless web of regu-
lation (Figure 1(C)). A seamless web of environ-
mental regulation implies an integrated set of
regulations, regulators and incentives. Regulations
involve a mix of traditional regulation, market
mechanisms and self-regulation. Regulators in-
clude federal and state regulators, NGOs, peers,
other companies along the supply chain, service
providers, investors and consumers. Incentives for
improved environmental performance range from
lower costs to increased market share and long
term resource access, with sanctions ranging
across incarceration of directors, license with-
drawal, loss of resource access, fines, falling
profits, loss of market share and falling investor
confidence.
Even within an industry, individual organiz-
ations will respond to environmental regulations
in different ways, depending on management
culture, size of the organization and the environ-
mental sensitivity of the operation. Improving
environmental performance requires regulatory
mechanisms that cater for a range of variables and
stimulate industry to adopt new environmental
technologies. Traditional, direct environmental
regulation will always be required to motivate
laggards who are the slowest to adopt the most
appropriate course of action (Guerin and Guerin,
1994). Proactive companies (innovators and
leaders), on the other hand, will respond to the
opportunities and incentives that self-regulation
offers to improve environmental performance.
Command-and-control environmental regu-
lations and reactive organizations are unlikely
to develop management improvement cycles
because the aim of the organization under this
mechanism is to meet their legal requirement
(Figure 2). Further, market mechanisms generate
only limited incentive for organizations to
develop a continuous improvement cycle, because
the aim of the organization is to meet their legal
requirements (and no more), at least cost. Industry
self-regulation, through an EMS, can create a
greater incentive for management to develop the
improvement cycle, which leads to a process of
continuous improvement in environmental per-
formance (Kirschner, 1995; Crognale, 1997). Con-
tinuous improvement is created because changes
in environmental performance are measured
against present performance and not past per-
formance or an arbitrary legal standard (Figure 3).
Moreover this level of performance is continually
Table 2. Definitions.
Environmental regulation Means that control or modify organizational behaviour towards the environment
Regulators Stakeholders playing a role in creating and enforcing this modified behaviour
State The unelected institutions and bureaucracy that carry out the affairs of state
Government The elected representative of the people
67

under review by the organization to determine
whether it can be improved.
The concept of a seamless web removes some
of the limitations of a regulatory system that
relies on a single traditional regulatory mechan-
ism, or single agency, to enforce environmental
regulations. These limitations include the problem
of regulatory capture, skills shortages, budgetary
cutbacks and political interference into the oper-
ations of the regulators. Furthermore, it allows
companies more flexibility in reducing costs
associated with dealing with the environmental
impact(s) (Hesse, 1989; Young, 1994).
Within the concept of the seamless web there is
no single best method of environmental regu-
lation. As soon as an organization identifies under
what category of environmental regulation they
will be controlled, they investigate methods to
reduce that regulation’s impact on their operation.
This action will often lead to measures that
will reduce the effectiveness of the original regu-
lation, and in some cases lead to an inefficient
‘ratcheting-up’ effect of environmental regulation.
Citizen Legal Standing
The proper functioning of the seamless web
requires two factors that are becoming more
prevalent in modern environmental policy. The
first is the granting of legal standing to all
stakeholders under the relevant environmental
regulation. This provision allows individuals or
organizations to instigate legal action against
parties who in their opinion are not complying
with legislative environmental regulation. This
provision supplements the resources the state has
to devote to enforcing environmental regulations
while preventing regulatory capture. Industry
sometimes claims that granting private standing
will lead to large numbers of ‘nuisance’ claims.
However this does not appear to be the case.
This citizen legal standing can also be used
to force public authorities to comply with
relevant environmental regulations and to en-
sure environmental regulators act on breaches
of environmental regulations carried out by
organizations.
Figure 2. The environmental management improvement cycle.
68

Public Disclosure
For environmental regulations to work efficiently,
all stakeholders need access to the relevant infor-
mation. Therefore, the second factor required is
environmental reporting by organizations in
order to aid informed debate and correct decision
making by stakeholders (Chynoweth, 1994; Nash
and Ehrenfeld, 1997). This information must be
complete, accurate, relevant, easily understand-
able and made available at short regular intervals
such as in external company reports. The Toxic
Release Inventory (TRI) initiative introduced by
the US EPA is an example of this practice at work.
Under this programme, companies reported as
having the highest levels of emissions had the
largest stock price decline and subsequently
reduced emissions more than their industry peers
(Konar and Cohen, 1997).
Best Practice Licencing
To further illustrate the development of this
seamless web model of environmental regulation,
the Western Australian Environmental Protection
Authority’s (WAEPA’s) Best Practice License initiat-
ive (DEP, 1996) is described. Prior to the intro-
duction of this initiative, most industries in
Western Australia operated within a system of
traditional regulation. All organizations received
the same incentive and the same legislative sanc-
tions. With the introduction of the system,
WAEPA offered a range of alternatives for
organizations, catering for differences in corporate
culture and varying the level of monitoring
required. There are four levels of licence available:
a regulated licence, a partially monitored licence, a
monitored licence and a best practice licence (BPL)
(Baker, 1996). The system was introduced from
1 October 1996 for all forms of licence except the
BPL, whose criteria were released in 1998. After
1 October 1996, organizations could choose to
adopt their preferred licence as their licence
renewals occurred, provided the regulators accept
the organization’s application. It is likely that in
this Western Australian situation laggards will
continue to operate as before, that is under the
regulated (command-and-control) licence. How-
ever, organizations that are proactive have the
opportunity to show leadership and obtain a BPL.
If such organizations can demonstrate proactive
environmental management and go beyond com-
pliance, they receive a benefit in accordance with
their efforts. These benefits include lower license
fees (the theoretical maximum can be as high as
$180 000AUS), reduced external monitoring of
their operation and longer periods between
license renewals.
An Example of Stakeholder Influence
A contrast of the influence that stakeholder press-
ure can have on company behaviour, management
and environmental performance is illustrated by
Shell’s Brent Spar Oil Platform activity in the
North Sea, and the Exxon Valdez oil spill in
Prince William Sound, Alaska. The community
and the market sanctioned Shell, although Shell
complied with legislation and with the support of
the relevant government departments, when they
attempted to sink their oil platform, the Brent
Spar (Greenpeace, 1996). In the case of the Exxon
Valdez oil spill, though many regulations were
breached, anecdotal evidence indicates that,
despite the urgings of high profile environmental
campaigners, neither the community nor the mar-
ket sanctioned the Exxon Oil Company to the
same extent as Shell. This example demonstrates
for modern business the need to be aware of the
stakeholder’s view, together with willingness by
stakeholders to act on these views, as it should
affect a company’s environmental strategy if the
company is to operate in their own long term best
interest.
THE ROLE OF ISO 14001 IN THE
SEAMLESS WEB OF ENVIRONMENTAL
REGULATION
Industry Involvement
Industry is expected to play an increasingly
important role in developing clean, sustainable
production systems. This is in response to regu-
latory failures, increasing public expectation of
industry’s environmental performance, and the
uncertainty surrounding the effect of state
environmental regulations on growth and inno-
vation (Heaton and Banks, 1997). The adoption of
ISO 14001 should encourage organizations to
69

develop an environmental strategy as an import-
ant element of overall management decision mak-
ing, together with a framework by which this
strategy can be put into operation. Through this
framework, self-regulation can lead to significant
improvements in environmental performance
(Gunningham, 1994b).
Models of Corporate Culture and Beyond
Compliance
There are various models for corporate cultures,
company actions and the benefits to firms and the
environmental impacts of these actions. The re-
lationship between actions and benefits varies
between companies depending on their particular
priorities, and it is expected that there would be
differences between and within industries. Any
given firm will establish their EMS with specific
goals in mind. There are two important points for
management to consider: (i) the development of
an EMS is a learning process for the organization
and (ii) the benefits are compounding. Any firm
can start with the simple inexpensive changes
first, then with experience, develop their EMS to a
higher level at a rate and in a manner which is
compatible with the organization. For example,
any company doing the minimum required for
ISO 14001 certification could be classified as
Observe and Comply, while another certified firm,
which is ‘truly’ environmentally proactive with a
large commitment to RD into environmental
technology, can be classified as Proactive. This
point illustrates a problem with ISO 14001 in its
present form. It should be recognized that the
implementation of ISO 14001 on its own is
unlikely to bring about maximum benefits to the
company, if the company or corporate culture
does not accept the need for a continuous
improvement in environmental management
(Anonymous, 1995; Kanegsberg, 1996; Rimich,
1996; Epstein and Roy, 1997).
Any company, at any point in time, will be
somewhere along the continuum of environ-
mental performance. A company may shift to the
left of their present position, to observe and
comply. This would represent deterioration in the
company’s concern for environmental issues. If a
company has no history in EMS and attempts to
move to True ESD, then it is likely it will have
great difficulty in doing so. Such companies can
speed up the process of learning by devoting
more resources to their EMS. Components of an
effective EMS such as worker participation and
changes to corporate culture and mechanisms to
integrate environmental factors with other man-
agement considerations take time and substantial
resources to develop. Fortunately, there is a
process of learning by doing.
Figure 3. Improvement of environmental performance in a company.
70

The Prospects of a Market Solution to a
Market Failure
The public’s expectation of how industry should
act regarding the environment has changed in
recent years. The natural environment cannot
now be treated as a free commodity or a dumping
ground. More importantly, sections of society are
prepared to act on these expectations, either by
changing spending patterns (Grabosky, 1995) or
through direct actions (such as illustrated in Shell’s
Brent Spar case). The US Superfund legislation is
another example where political and social press-
ure is being used to make industry more account-
able for their actions and correct past market
failures. Surveys of the public in the US concluded
that more than 75% of participants classified
themselves as environmentalists (Nicklas, 1993;
McInerney and White, 1995). Similar results were
shown from a survey conducted by the Australian
Bureau of Statistics (1996) where 75% of
Australians were concerned about environmental
issues.
Companies are having to assess and manage
the environmental risks of their operation(s), and
demonstrate this to service providers, investors
and other stakeholders, to ensure the long-term
support of the stakeholders, and indeed the sur-
vival of the company. These changes create the
potential for market pressure to be brought
against a market failure. However, if we were to
leave it up to the market to trigger the change,
the results would be much slower and more
erratic than socially desirable or acceptable. Hence
there is a requirement for public policies to
complement the incentive for industry to adopt
new technologies. This could be achieved through
legislative reform and recommendations in rela-
tion to the US environmental laws and regulatory
framework have been presented by Heaton and
Banks (1997).
This shift in organizational culture towards the
environment, for whatever reason, is paralleled in
other areas of organizational management. Areas
such as unfair dismissal, health and safety issues,
childcare, maternity leave and redundancy pay-
outs are examples where corporate attitudes have
changed in recent times.
There are likely to be many sceptics to the
argument being mounted that the market and
industry can protect the environment, claiming
that self-regulatory standards are another way by
which industry can ‘pull the wool’ over the
public’s eyes. This is being too cynical. Few
advocate the removal of other types of environ-
mental regulation. Both environmentally pro-
active companies and ISO maintain there will
always be a need for the ‘carrot’ and the ‘stick’.
Both approaches are important threads of the
seamless web of regulation. To this effect,
Gunningham (1994a) states
The bigger the stick at the disposal of the
regulators, the more it is able to achieve
results by speaking softly.
This is supported by Stoughton (1994), who
argues that
Voluntary programs have the potential to
affect significant changes in environmental
behaviors, and can be effective policies for
environmental protection. They often depend,
however, on a strong enforcement role for the
agency under its regulatory mandates, and
thus must be a supplement, rather than a
replacement for regulation.
These statements support the argument put
forward in this paper that the time has come when
the ‘carrot’ can play a greater part, by rewarding
companies for being proactive in the field of
environmental management. For this process to
be successful, however, legislative environmental
regulations are required, and the size of the ‘stick’
maintained or increased. To obtain the maximum
environmental benefit of environmental manage-
ment systems (including those based on ISO
14001), these regulations should be integrated
into the seamless web, providing another thread,
and complementing, not replacing, existing regu-
latory measures. The use of economic incentives
is normally preferable to the power of the law to
alter human behaviour. We assert that both need
to be available.
CONCLUSION
There can be a win – win outcome in the ESD
debate – when industry produces and the en-
vironment is protected. Furthermore, the current
ESD debate is not between environment and
71

development, but rather between sustainable and
unsustainable technology. Economies are achiev-
ing growth with reduced environmental impacts,
through the appropriate use of innovations in
environmental technology.
There is a clear indication that a combination of
a specific type of environmental regulation, cor-
porate culture and public policy will stimulate
innovation in environmental technology. How-
ever, the use of environmental regulation alone is
an indirect and inefficient method of stimulating
innovation in environmental technology. Insti-
tutions and policies that manage risk and uncer-
tainty should assist industry to adopt cleaner
production methods.
The ‘evolution’ of environmental regulation
identified a problem with traditional environ-
mental regulations in that they encouraged ineffi-
cient, ‘end-of-pipe’ solutions. Market mechanisms
generate incentives for the economically most
efficient solution, but they retain many of the
problems of traditional legislative environmental
regulation, including the absence of sufficient
incentives for organizations to go beyond com-
pliance. This evolution has led to the development
of self-regulations that include ISO 14001. ISO
14001 is a process or management standard that is
forming an important thread in the seamless web
model of environmental regulation. ISO 14001
supplies the framework for industry to go beyond
compliance and it encourages continous improve-
ment in environmental performance, based on a
feedback loop that measures improvement from
present performance, not an arbitrary benchmark.
The environmental result desired by organiz-
ations under traditional regulation is to meet the
required legislative standards. The result desired
by organizations under a market mechanism is to
meet the required legislative standard at the least
cost. These are contrary to the desire of organiz-
ations with a continuous improvement cycle in
their management system, and therefore, a desire
and behaviour to improve environmental per-
formance, and to move beyond compliance.
Under traditional and market regulations, organi-
zations have very little incentive to review their
environmental impacts, unless for legal reasons,
and therefore a ‘set-and-forget’ mentality may
ensue.
The incentive for adopting ISO 14001 is at
present provided by the market, although this is
starting to change as environmental regulators
begin to recognize benefits in having organiz-
ations develop environmental management
systems. The framework presented here, of a
seamless web, requires the maintenance of tra-
ditional environmental regulation; however, it
allows the ‘carrot’ to play a greater part in the
development and adoption of environmental
technology.
Modern environmental policy needs to be
developed so that industry and society gains the
maximum benefit from all the threads and inter-
actions of the seamless web, leading to better
environmental protection with the least impact
on production and competitiveness for any
organizations that accept this challenge.
A key attribute of the seamless web model is
that it provides a framework that does not rely on
any one mechanism or stakeholder, so, where one
mechanism or stakeholder may fail, another will
fill the gap, allowing for on-going environmental
protection. Furthermore, advocating a single regu-
latory mechanism is prone to failure because those
being regulated implement management changes
that reduce the effect of the relevant regulation on
their behaviour. In addition, complex authori-
tative environmental regulations require large
amounts of public resources to be fully imple-
mented and these resources are not always pro-
vided. The seamless web model provides the
flexibility to cater for different corporate cultures,
a major requirement of modern environmental
policy. It also reduces the demand on public funds
to enforce legislative environmental regulations.
Policy makers need to actively reduce risk and
uncertainty while giving incentives for industry
to be proactive, for these are the organizations
which will help solve many of our environmental
problems. The stick will still need to be main-
tained as an important mechanism to activate
laggards.
It is recognized that there is a large amount of
enlightened self-interest in the process of self-
regulation for industry. Therefore the process of
self-regulation will require external monitoring if
it is to attain credibility amongst stakeholders.
Self-regulation allows companies to be flexible
about how and when they address their environ-
mental problems, reducing associated costs and
improving efficiency. However, industry must
realize that this process will not necessarily reduce
72

the level of scrutiny industry faces, but rather the
direction from which this scrutiny comes from
will shift from the government and state to other
sectors of society. Further, the required level of
environmental protection may not in all cases be
able to be achieved at no cost to industry, and in
these cases traditional regulation and market
mechanisms will be required.
The stakeholders involved in environmental
regulation do not operate in isolation. To protect
the environment, in balance with economic devel-
opment, the core aim of ESD, will require that all
stakeholders play their part in an integrated
seamless web of environmental regulation.
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74

BIOGRAPHY
Dr. Turlough F. Guerin can be reached at 248
Gladstone Avenue, Coniston 2500 New South
Wales, Australia.
Email address: turloughg@hotmail.com
Dr. Guerin has expertise in environmental tech-
nology and management systems and has worked
for ICF Kiser, Hamersley Iron and Rio Tinto
RTD. He assists corporations with cross-
industry technology transfer and the integrated
management of business and EHS issues and has
advised to numerous corporations in the USA,
including the Motorola Corporation and Levine-
Fricke Engineering.
William J. Altham can be reached at Institute
for Science and Technology Policy, Murdoch
University, Perth 6510, Western Australia.
Email address: w.altham@central.murdoch.edu.au
William (Jim) Altham holds an Economics
Degree and a Master Degree in ESD. His research
interests include environmental management
systems, green corporate strategy, regulation and
innovation in clean technologies, emissions
trading and renewable energy policy.
75

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